Supreme Court New South Wales Medium Neutral Citation: In the matter of IPM Developments Pty Ltd [2023] NSWSC 1443 Hearing dates: 21 November 2023 Decision date: 28 November 2023 Jurisdiction: Equity - Commercial List Before: Ball J Decision: (1) The plaintiffs provide security for the defendants' costs of this proceeding and proceeding 2022/00069738 in the amount of $375,000 with such security to be by way of payment into Court or in such other form as agreed between the parties; (2) The security be provided in the following tranches: (a) $125,000 to be paid within 21 days of the date of this judgment; (b) $125,000 to be paid within 21 days of the date on which the proceedings are set down for a final hearing; (c) $125,000 to be paid at least 28 days before the date fixed for the commencement of the final hearing; (3) This proceeding and proceeding 2022/00069738 be stayed if the security is not provided in accordance with order (2) until the security is provided; (4) The plaintiffs pay the defendants' costs of the notice of motion filed on 18 September 2023; (5) Matter listed for directions on 1 December 2023. Catchwords: COSTS — Security for costs — Whether security should be ordered against an Owners Corporation — Where plaintiffs plainly impecunious — Where request for undertakings refused Legislation Cited: Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Strata Plan 94417 trading as The Owners Strata Plan 94417 v TC Build [2021] NSWSC 1284 Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 Category: Procedural rulings Parties: Owners Strata Plan 16624 (First Plaintiff | First Respondent) Owners Strata Plan 90950 (Second Plaintiff | Second Respondent) IPM Developments Pty Ltd (In Liquidation) (First Defendant | First Applicant) IDA Potts Point Pty Ltd (In Liquidation) (Second Defendant | Second Applicant) Alan Hayes in his capacity as liquidator of IPM Developments Pty Ltd (In Liquidation) and IDA Potts Point Pty Ltd (In Liquidation) (Third Defendant | Third Applicant) Representation: Counsel: P Folino-Gallo (Plaintiffs | Respondents) D Robertson (Defendants | Applicants) Solicitors: Piper Alderman (Plaintiffs | Respondents) Thomson Geer (Defendants | Applicants) File Number(s): 2023/111740 Publication restriction: None JUDGMENT 1. By a notice of motion filed on 18 September 2023, the defendants seek security for their costs in the amount of $387,850. Background 1. The plaintiffs are two owners corporations in respect of strata developments in Brougham Street, Woolloomooloo. As part of the redevelopment of the land comprising the strata developments: 1. Lot 3 in SP16624 (the owners corporation of which is the first plaintiff (OC 16624)) was subdivided into two lots, which became lots 11 and 12 in a new strata plan known as SP90950 (the owners corporation of which is the second plaintiff (OC 90950)); 2. The remaining lots of SP16624 other than lots 1 and 2 and the newly created lot 11 were sold to the first defendant, IPM Developments Pty Ltd (IPM) on behalf of a yet to be incorporated company that became the second defendant, IDA Potts Point Pty Ltd (IDA), with the result that only two lots (lots 1 and 2) remain in SP16624 and only one lot (lot 12) remains in SP90950. 1. Lots 1 and 2 are owned by Romay Custodian Pty Ltd (Romay). Lot 12 is owned by Faxona Pty Ltd (Faxona). Mr Robin Kenyon and Mrs Marcia Kenyon are the sole directors and shareholders of Romay. They are also the sole directors of Faxona and Mr Kenyon is its sole shareholder. OC 90950 does not maintain any records and appears to be operated as part of SP 16624. Mrs Kenyon controls the Executive Committee of SP 16624. 2. The records for SP16624 indicate that as at 30 June 2023, the owners corporation had negative net assets of -$5,287.60 and had cash totalling $24,694.47 in its administrative fund and capital works fund and that its administrative fund operated at a deficit of -$9,222.97 for the year ending 30 June 2023. 3. In proceedings commenced in the Commercial List on 10 March 2022, the plaintiffs sue IDA and IPM, which was retained by IDA to manage the redevelopment of the property it had acquired, for misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (the ACL) and unconscionable conduct in contravention of s 21 of the ACL. Mr Aleksander Novakovic, the sole director of IDA and IPM, has been joined as a defendant in those proceedings. 4. On 9 May 2022, IPM and IDA were placed into liquidation. On 17 June 2022, OC 16624 and OC 90950 lodged proofs of debt in the winding up of each company relying on the claims the subject of the Commercial List proceeding. Those proofs of debt were rejected by the liquidators and on 6 April 2023, OC 16624 and OC 90950 commenced proceedings in the Corporations List against IPM, IDA and the liquidator challenging the rejection of the proofs of debt. That proceeding was transferred to the Commercial List to be heard together with the Commercial List proceeding. Although the application for security has been filed in the Corporations List proceeding, the security sought relates to both proceedings. 5. There is considerable correspondence between the solicitors for the parties relating to the provision of security. It is not necessary to describe that correspondence in any detail. However, it is relevant to observe that in a letter dated 19 July 2023, Thomson Geer, the solicitors for the defendants, made the following proposal in relation to security: Subject to verification from Romay Custodian Pty Ltd and Faxona Pty Ltd of the representations set out in paragraph 10 of your letter (by way of the provision of loan and security documentation confirming the amounts of any mortgages), our clients would be willing to accept, in lieu of an order for security for costs, undertakings from each of the relevant lot owners in Strata Plans 16624 and 90950 to the Court and to our clients: 1 to pay any adverse costs order made against your clients; and 2 to not encumber or further encumber their respective lots. That proposal was rejected by the plaintiffs. 1. Subsequently, the plaintiffs initially conceded that they should provide security, but they subsequently resiled from that position relying on a decision of mine in Strata Plan 94417 trading as The Owners Strata Plan 94417 v TC Build [2021] NSWSC 1284. In that case, I held that it was not appropriate to order security against the owners corporation in that case. In reaching that conclusion, I said (at [7]): The Strata Schemes Management Act 2015 (NSW) contains a mechanism by which the Owners Corporation must raise funds from lot owners to meet its financial obligations and a mechanism for recovering any unpaid contributions owing by lot owners. Consequently, in substance, these proceedings are brought for the benefit of lot owners who ultimately must bear the costs of the proceedings, including any costs orders made against the Owners Corporation. … I also pointed out that any security would have to be raised by a levy on the lot owners and that there was no obvious mechanism by which the amount raised could be returned to lot owners if the owners corporation was ultimately successful. Taking those matters into account, I declined to make an order for security. Should security be ordered? 1. It is common ground that the Court has power to order the plaintiffs to provide security under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.21(1)(d), which gives the Court power to order security where "there is reason to believe that [the] plaintiff … will be unable to pay the costs of the defendant if ordered to do so". If that threshold requirement is satisfied, the evidential onus shifts to the plaintiff to satisfy the court that, taking into account all relevant factors, security should be refused or should be ordered in a lesser amount than that sought by the defendants: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] per Beazley JA (with whom Meagher and Barrett JJA agreed). 2. In the case of most owners corporations, the owners corporation is governed by an executive committee who in the normal course of events could be expected to take the steps required of them to ensure that the owners corporation was in a position to discharge any liability it had. There will often be a substantial number of lot owners and there is no reason to think that they would seek to order their affairs to avoid payment of a levy that was struck to meet a costs obligation. It was considerations of that type that lead me to reject the application for security in Strata Plan 94417. 3. However, the present case is different. The plaintiffs are plainly impecunious. They are controlled by Mr and Mrs Kenyon, who are the only natural persons for whose benefit the proceedings are brought. The ability of the plaintiffs to discharge any liability for costs depends entirely on them. In that context, it was reasonable for the defendants to request the undertakings they sought and it is relevant that those undertakings were refused. On the material before it, the Court cannot have the same confidence that Mr and Mrs Kenyon will take steps to ensure that the plaintiffs are in a position to meet any costs order against them as might be the case where security is sought from a typical owners corporation. 4. No other discretionary reason was advanced by the plaintiffs for why security should not be ordered. During the hearing, the plaintiffs did indicate that they were willing to provide the undertakings originally sought by the defendants. However, the defendants' position was that they were no longer willing to accept those undertakings. In some cases, undertakings offered by a plaintiff may be relevant to the exercise of the court's discretion particularly when they are freely offered at an early stage. However, in my opinion, if the defendants are otherwise entitled to security as the defendants in this case are, they should not be deprived of that security because the undertaking is proffered at the last moment in a context where it has become apparent that an order for security is likely to be made. Quantum 1. The defendants' solicitor, Mr Peter Harrison, provided a detailed estimate of the defendants' costs in an affidavit sworn on 15 September 2023. That estimate was criticised by the plaintiffs' solicitor, Ms Cheryl Weston, in an affidavit sworn on 10 October 2023. In response, Mr Harrison swore an affidavit dated 26 October 2023 in which he provided a revised estimate which made adjustments to his original estimate where he thought it was appropriate to take account of Ms Weston's comments. He gives an explanation for each of those adjustments and an explanation of why he disagreed with many of the adjustments proposed by Ms Weston. 2. After making those adjustments, Mr Harrison estimates that the defendants' total legal costs will be as follows: Solicitors costs to date $43,594.00 Estimated future solicitors costs $269,410.00 Counsel's fees to date $10,250.00 Future counsel's fees $85,000.00 Estimated expert witness fees and other disbursements $83,024.00 Total $491,278.00 1. Mr Harrison discounts solicitor's fees by 30 percent and counsel's fees by 10 percent to arrive at an estimate of party/party costs of $387,850. 2. Ms Weston's estimate of solicitor/client costs is $227,883. She applies a discount of 40 percent to arrive at a figure of $136,729.80 as an appropriate amount for security. 3. Ms Weston's estimate of costs only relates to future costs. She applies a discount of 40 percent instead of 30 percent and she applies that discount to solicitor and counsel fees. Those points aside, it is not easy to identify the principal differences between Mr Harrison and Ms Weston. Mr Harrison prepared a detailed schedule providing a description of the work that he thought was necessary, the time it would take and the estimated charge for each solicitor who would undertake that work. Ms Weston takes that schedule and makes reduction for each item, most often because Mr Harrison has assumed that more than one lawyer would need to be involved in the work or because Ms Weston regarded the time allowed for by Mr Harrison to be excessive. 4. It is neither practical nor useful for the Court to address each adjustment made by Ms Weston. In my opinion, the approach taken by Mr Harrison is reasonable. He has provided a detailed breakdown of the work he expects to be undertaken. He has taken account of Ms Weston's comments where he thought it was appropriate to do so and has provided short explanations for his adjustments and why in relation to other items he has made no change. The parties accept that the hearing is likely to take five days. It will involve a detailed factual investigation of the parties' conduct in relation to the redevelopment. It appears to be common ground that it will be necessary for the defendants to call expert evidence form a planning consultant. Taking those matters into account, the estimate provided by Mr Harrison does not appear to be unreasonable. The figure arrived at by Ms Weston seems unreasonably low. 5. In my opinion, it is appropriate that the defendants should obtain security for past costs. The Commercial List proceeding was stayed pending determination of the plaintiffs' proofs of debt. The Corporations List proceeding was not commenced until April 2023. Although the application for security was not made until September 2023, the question of security was first raised in correspondence in May 2023. The defendants sought reasonably to resolve the question of security before filing their motion. 6. The plaintiffs appear to object to providing security for past costs on the basis that Mr Harrison did not provide copies of the invoices for those costs. Mr Harrison explains that he did not do so because the invoices contain privileged information. It may have been better for the invoices to have been provided with the privileged information redacted. However, there is no reason to doubt the figures provided by Mr Harrison and I do not think that the absence of invoices provides a reason for refusing security in respect of past costs. 7. In my opinion, a discount on estimated solicitor/client costs to arrive at a figure for estimated party/party costs of 40 percent is unreasonable, particularly when it is applied to counsel fees as well as solicitor fees. The discounts proposed by Mr Harrison fall within the range of what would be regarded as acceptable. 8. Taking those matters into account, in my opinion, it is appropriate to order security in the sum of $375,000 in three tranches of $125,000 each. The first tranche should be paid within 21 days of the date of this judgment. The second tranche should be paid within 21 days after the matter is set down for final hearing. The third tranche should be paid 28 days before the date fixed for the commencement of the hearing. The security should be by way of payment into Court or in such other form as agreed between the parties. 9. The orders sought by the defendants provide that the defendants have liberty to apply for further security. The orders I propose to make provide for security up until the end of the hearing. The nature of the case does not justify multiple applications for security for costs. It remains open to the defendants to apply for a variation of the orders I propose to make if a change in circumstances justifies such an application. I am not satisfied that it is appropriate in those circumstances to make the order sought by the defendants. 10. In circumstances where the plaintiffs were unsuccessful in resisting the application for security, it is appropriate that they pay the defendants' costs of the motion. 11. Accordingly, the orders of the Court are: 1. The plaintiffs provide security for the defendants' costs of this proceeding and proceeding 2022/00069738 in the amount of $375,000 with such security to be by way of payment into Court or in such other form as agreed between the parties; 2. The security be provided in the following tranches: 1. $125,000 to be paid within 21 days of the date of this judgment; 2. $125,000 to be paid within 21 days of the date on which the proceedings are set down for a final hearing; 3. $125,000 to be paid at least 28 days before the date fixed for the commencement of the final hearing; 1. This proceeding and proceeding 2022/00069738 be stayed if the security is not provided in accordance with order (2) until the security is provided; 2. The plaintiffs pay the defendants' costs of the notice of motion filed on 18 September 2023; 3. Matter listed for directions on 1 December 2023. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 November 2023